Topics Copy Trading
Bybit Learn
Bybit Learn
21 May 2022

What Is Crypto Copy Trading and Why Should You Try It?

Many people assume that the only way to make money in cryptocurrency is by having extensive knowledge of mathematics, finance and technology. However, the reality is that there are a lot of helpful tools available. Crypto copy trading is a type of software that can make it far easier to trade crypto. What is crypto copy trading? Explore our guide to learn what it is and how it works.

What Is Crypto Copy Trading?

Crypto copy trading is a trading strategy that uses automation to buy and sell crypto. It lets you copy another trader's methods, so you don't need a lot of time or experience yourself.

The whole concept of crypto copy trading revolves around the idea of identifying successful traders and mimicking their actions. Unlike regular trading, copy trading doesn't focus on identifying market trends or attempting complex trading strategies. Instead, the automated software simply looks at what another trader is doing and does the same thing. For example, if one trader spends 5% of their money on a certain coin, the copy trader's software would spend 5% of their money on the same coin.

Copy trading is great for beginners because they don't have to fully understand the market themselves. Instead, they can use the expertise of other traders to make smart decisions. Even if you already understand the market yourself, copy trading can be a helpful tool. It's less hands-on, so using copy trading can free up some of your time. Being able to see how other traders make decisions can also help you learn about the market and create strategies that work for your needs.

How Does Crypto Copy Trading Work?

Crypto copy trading only works with the right software. It takes a little time to set up, but once you do, it runs automatically. A typical copy trade system will automatically mirror the lead trader at all times. You can set it up to invest the actual same amount as the lead trader, or you can set it up to invest a percentage of your funds equal to the lead trader's percentage.

Though crypto copy trading doesn't require your input, you can add input if you want. You can halt any trade the software makes, and you have the option of manually closing a position before the principal trader does. Crypto copy trading isn't tied to any specific trader, so you can switch up the person you copy whenever you want.

For crypto copy trading to work correctly, you have to actually have access to another person's trades. How do you get another trader to consent to this? Most copy trading software makes this easy. You look over a selection of principal traders and find someone with results you like. Then you use the software to automatically begin mimicking that person's trades. You get the profits from the trades, and they collect a small fee, which is usually around 5% to 10% of your profit.

This system might sound very futuristic, but it's actually a time-honored technique. Copy trading has been around in one form or another since 2007. It's very reputable and is recognized by the Financial Conduct Authority, European Securities and Markets Authority, and other regulatory organizations. These organizations place a lot of regulations on copy trading, so as long as you use an authorized copy trading service, you can be confident it's a legitimate trading method.

Pros and Cons of Crypto Copy Trading

To see if crypto copy trading is right for you, it's helpful to learn a little about its pros and cons.

The advantages of copy trading include:

  • You can use the metrics on copy trading sites to quickly and clearly identify traders with winning strategies.

  • Copy trading lets you free up your time  for other matters while the software does the work for you.

  • You get to invest your money based on statistics, instead of letting your emotions impact your trades. Copy traders are less likely to make mistakes due to panic or FOMO.

  • Since you're following expert traders, you can make informed trades without having to do all the research and learn about the cryptos yourself.

  • Copy trading lets you closely see what other investors are doing, so you get a lot of insight into how the crypto market works.

  • Using another investor's ideas makes your portfolio more diverse. Instead of sticking to strategies you personally use, copy trading lets you try out other people's tactics.

  • The fees associated with copy trading can be cheaper than paying an investor to manage your crypto trades for you.

However, there are also a few downsides to copy trading:

  • Every decision doesn't have to be approved by you, so you lose some control.

  • Your trades will only be as good as the trader you follow. Picking the wrong trader to follow can cause you to lose money.

  • Since your trades lag slightly behind the lead traders, a very volatile market can keep you from getting identical results. Some sites will cancel orders if there’s a huge difference between the market price and the price the lead trader used.

  • Every trader has a different level of comfort with risk. You can encounter issues if you're using all of your savings to copy a trader who has a high risk tolerance and a lot of money to play with.

  • You may need to share a small percentage of your profits with the lead trader to compensate them for their work.

Crypto Copy Trading vs. Crypto Social Trading

People often confuse the two concepts of crypto copy trading and crypto social trading. Both methods involve collaborating with others on your investments, and making decisions based on input from others. Though their names may sound similar, there are some key differences between the two methods.

Social trading is a type of investment where traders form a group and work together. Traders in the group share research and tips with each other, and more than one person may chime in to help a trader optimize their portfolio. In some cases, investors may even pool funds to make a larger investment together. This form of investment has become very popular due to social media. For example, Reddit forums or Twitter followers may start discussing their thoughts and begin sharing market analyses to help their fellow traders.

As you can see, social trading is a lot more informal than crypto copy trading. You don't necessarily have to use any specific software or enter a profit-sharing agreement with an investor. Many people who use social trading browse through a variety of groups and take input from multiple social circles. Some forms of social trading can involve contracts for pooling funds, but you don't have to commit to anything unless you want to.

Crypto Social Trading: Pluses and Minuses

Compared to crypto copy trading, crypto social trading has its own pros and cons. Social trading provides a lot more freedom. You get to make most decisions on your own while getting input from multiple other traders. Social trading also lets you work with others to plan trading strategies that only work with larger amounts of users and funds.

However, social trading requires a lot more work than crypto copy trading. You have to network with others, build trading relationships, and spend a lot of time learning about things on social media. In addition to being more hands-on, social trading is also less reliable. Unlike crypto copy trading, social trading doesn't let you just set up an account and sit back to watch what happens. You may not have as cohesive a strategy because you're taking input from multiple people instead of a single trader. Social trading doesn't offer access to the long-term investment strategies you can copy while crypto copy trading. Using social trading for crypto can also cause problems when social media over-hypes news and causes bouts of impulse trading.

How to Start Crypto Copy Trading on Bybit

Bybit is one of the most popular crypto copy trading platforms to give copy trading a shot. Even when you're still wondering, "What is crypto copy trading?" Bybit makes it easy to understand the process. If you want to give copy trading on Bybit a try, follow these simple steps:

  1. Create a copy trading account: Begin by setting up a crypto copy trading account on your existing Bybit account. Once you've done this, you can go to the Derivatives tab and click on the Copy Trading option to begin trading.

  2. Fund your account: Make sure you have money in your account to begin trading. If desired, you can transfer funds straight from your Derivatives account to your Copy Trading account. Keep in mind that Bybit currently only supports USDT for funding.

  3. Choose a trader to follow: Browse the principal trader cards to select a person you want to follow. You'll be able to consider things like their number of winning trades and the average profit their followers receive.

  4. Select your trading parameters: Once you’re following the principal trader, Bybit will prompt you to choose parameters. You can enter your order amount, designate a derivative trading pair, and choose your desired leverage.

  5. Confirm your decision: To start crypto copy trading, all you have to do next is confirm your decision. Once you click on Copy, you'll start following the trader's moves.

  6. Check up on your trades: If desired, you can be completely hands-off. However, Bybit also lets you log in to your account to see your current positions at any time. From the My Copy Trades tab on the right side of the page, you can monitor your trades, and from the User Center tab, you can close trades manually at any time.

Keen on getting started with copy trading? Sign up on Bybit and begin your copy trading journey today.

Is Crypto Copy Trading Profitable?

What is crypto copy trading's success rate? There are plenty of instances where it works well. On average, industry experts estimate that copy traders make roughly a 30% return on investment when they copy a prop trader. Individual traders usually have an ROI of somewhere between 3% to 57%. Keep in mind that crypto copy trade sites will halt your trades if your account zeroes out, so unlike some other trading strategies, you can't lose more money than you put in.

If you're still cautious about giving crypto copy trading a try, it can be helpful to learn a little about others' experiences. Writer G. Agrawal detailed his experience using CryptoLivermore. Initially, he decided to copy a trader who was gaining popularity for their rapidly increasing profits. However, it turned out that this trader was using a risky mean reversion strategy, so Agrawal lost all of his money. Next, Agrawal tried doing a little more research instead of just picking the trader with the highest profits at the moment. He split his funds between two accounts and chose investors known for their solid risk management. One account had little growth or loss, while the other grew by 150%, so Agrawal ended up making a very nice profit.

A Word to the Wise: DYOR

Quite a few others share similar stories. L. Davies writes that he knew almost nothing about crypto, but realized he needed a source of passive income while he was studying at university. Davies signed up for eToro and found that crypto copy trading was a huge help. He says it helped him fast-track his crypto learning, and now he makes enough to pay for school while still having time to study.

Keep in mind that your success is heavily dependent on the trader you’re copying. To be successful, you need to have a good risk management strategy in place. Take the time to really research various traders before you start crypto copy trading. Choose those with a decent amount of activity, several other followers, and a reliable return rate.

You'll also need to consider whether a trader does short-term or long-term trades. If you copy a long-term trading strategy, but close your trade out in a week, you might find that you end up losing money. In addition to finding a good trader, you can also increase your chances of success by copying multiple traders at once. This can help you increase your chances of finding a winning strategy.

The Bottom Line

To sum up, crypto copy trading can be an easy and effective way of making crypto trades. Copying other more experienced traders lets you automate your trades and learn a little more about how the market works. As long as you take the time to research traders carefully and follow a reputable trader, you can increase your chances of success.